SEVERODVINSK, Russia (Reuters) - Russia announced plans to build five nuclear submarines and made $9 billion worth of orders for the navy on Wednesday as part of an ambitious programme to modernise its army and fleet spear headed by Prime Minister Vladimir Putin.

Putin, who will seek his third term as president next year, visited Alexander Nevsky, the new Borei class nuclear submarine, which will carry Bulava intercontinental missiles, and attended the signing ceremony at the Sevmash shipyard on the White Sea.

"I am sure that realisation of this unprecedented programme, both in terms of its goals and financial resources, will enable us to carry out a large scale modernisation of our army and fleet," Putin told a meeting of government officials at Sevmash.

The contracts, whose details are sketchy, envisage construction of five Yasen class submarines, a Sevmash official who declined to be identified told Reuters. The cost of one Yasen submarine is estimated at $1.3 billion.

Yasen is bigger than Borei, whose cost is estimated at $759 million. It is armed with cruise missiles and does not carry long-range ballistic missiles such as Bulava which fall under international arms reduction treaties.

No contracts for construction of Borei class submarines were signed on Wednesday. The spokesman for state-run United Shipbuilding Corporation (USC), of which Sevmash is part, said there were ongoing discussions over the price.

After a sharp drop in military spending in the 1990s, Russia plans to spend 20 trillion roubles ($653 billion) before 2020 to modernise its military with the quarter of the amount assigned to upgrading the navy.

Putin is also seeking to boost growth in non-energy sectors through reviving the Soviet military industrial complex, whose remnants have now been merged into large state-owned conglomerates such as USC, United Aviation Corporation and Russian Technologies.

Putin called on arms makers to cut costs and improve quality in response to complaints from the Defence Ministry.

Putin said the government is ready to guarantee the arms makers up to 35 percent returns, unprecedented for the industry, provided that some of the proceeds are re-invested.

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